Dairy Talk

Jim Dickrell is the editor of Dairy Today and is based in Monticello, Minn.

A Tale of Two Economists

Feb 24, 2013

The two forecasters reached opposing conclusions looking at the very same set of economic data and job numbers. Who is right is critically important to dairy producers.

As Charles Dickens wrote in his epic, 1859 classic, A Tale of Two Cities, "It was the best of times, it was the worst of times."

Listening to two prominent economists at ag conferences last week, you’d get the impression that the U.S. economy is faltering along at a paltry 2% growth rate or is poised to finally break out of the doldrums after nearly five years of tepid growth. The irony: These economists reached these opposing conclusions looking at the very same set of economic data and job numbers.

Who is right is critically important to dairy producers. Which way the economy heads has everything to do with the demand for dairy products. As producers have proven, even through one of the worst droughts in 50 years, they can continue to produce ever more milk. The only way milk prices can maintain some semblance of strength is the industry’s ability to continue to sell the stuff. And that’s where economic forecasts and consumer psychology come to the fore.

The "glass half empty" economist is Martin Regalia, chief economist for the U.S. Chamber of Commerce. Regalia spoke last week at the Wisconsin Dairy Business Association’s Expansion Conference in Green Bay. "The economy is not performing like we expect it to perform," he says. "Normally, we would expect a U-shaped recovery and a quick snap back to normal growth rates of 3% to 4%."

In the 1991 recession, it took 23 months for the economy to recover. In 2001, it took 39 months. Today, we’re 40-plus months and still counting, he says.

The "glass half full" economist is Blu Putnam, chief economist for the Chicago Mercantile Exchange Group. Putnam spoke two days later at Intl FCStone’s Agricultural and Economic Outlook Meeting in Las Vegas. "The U.S. economy is maintaining a 2.2% growth rate in the face of head winds such as slower growth in China and a stagnant European economy. It’s a testament to the robustness of the U.S. economy," he says.

Regalia’s pessimism is anchored in the U.S. government’s inability to deal with its fiscal problems, deficits and long-term debt. Fixing those is largely tied to entitlement reform in Social Security and Medicare. Continued extension of unemployment benefits simply leads to more unemployment, he says. And he blames President Obama for his lack of leadership and unwillingness to take on Democratic Party intransigence on these issues.

Putnam’s tempered optimism is grounded in the underlying resilience of the U.S. economy and the entrepreneurial drive of American business. While a 2% growth rate may seem tepid, the U.S. economy outperformed its peer group (Europe, Japan) through this global recession, he says.

He thinks the worst is over. Why? China’s growth deceleration has ended. The danger of implosion of the European debt crisis has passed. The U.S. has avoided the worst of the fiscal cliff. And it will get by sequestration and the debt ceiling, too, albeit in a very messy manner, he says.

So who is right? Time will tell, of course. My key message, however, is that you need multiple sources of information to make your own assessment. Sole reliance on one source can lead to very different conclusions. Charles Dickens would likely agree.